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Lenders will have to apply tougher affordability tests before they agree to a mortgage for homebuyers and owners.

The Financial Services Authority (FSA) has unveiled its Mortgage Market Review outlining how it plans to tighten regulation of mortgage lending.  The paper is not definitive and mortgage lenders have until the end of January next year to respond. 

The review envisages a complete ban on ‘self-certification' mortgages where the borrower could verify their own income without independent checks and tighter checks on buy-to-let mortgages.  Lenders are also likely to be made responsible for assessing a consumer's ability to pay, requiring them to check that prospective borrowers will not end up in arrears.
 
The FSA says that the proposals are designed to tackle the problems identified while maintaining a vibrant and sustainable market.  But it has not ruled out further changes if the initial proposals do not have sufficient effect, including caps on loan-to-value, loan-to-income or debt-to-income.

Jon Pain, managing director of supervision at the FSA, says: "The FSA needs to ensure that firms only lend to people who can afford to pay the money back. The reforms that we have announced today will ensure that the mortgage market works better for consumers and that it is sustainable for firms."